January 29, 2017

Barrons: Dow 20K now next stop 30K

The financial magazine which has made an art out of calling for big, round numbers in the Dow Jones Financial Index (as a reminder over 20% of the Dow's surge since the election is due entirely to Goldman Sachs), most recently with its "get ready for Dow 20,000" call from just over a month ago, has done it again:

While there are still those - pretty much anyone who still cares about fundamentals - who are scratching their heads at Dow20K, according to Barrons "the Dow hitting 20,000 was no fluke. Today’s stock prices are well supported by solid prospects for corporate earnings and economic growth."

In fact, Dow 30,000 is just around the corner... well by 2025. All President Donald Trump has to do, according to Barron's, is "avoid stumbling into a trade war—or a real war." Some of the profound insight behind this forecast so reminiscent of the infamous "Dow 36,000" prediction which hit just around the time of the last market bubble.

Clearly, part of the propulsion behind stocks has been the Trump administration and its flurry of business-friendly edicts. If Trump can succeed in reducing regulation and lowering corporate taxes, stocks should surge further this year. An additional 5% or even 10% gain in 2017 wouldn’t be surprising. Our projection of 30,000 by 2025 is based on our analysis of historical data provided by Jeremy Schwartz, director of research at WisdomTree. This data, which looks at stock market returns for rolling five-year periods dating back to 1871, suggest stock market gains will fall below the market’s typical annual gain of 6% after inflation in the next five years before accelerating above the average in the years after that.

Then again, perhaps Dow 30,000, which would require China to inject in at least another $30 trillion in debt in the next decade without somehow hitting the Minsky moment tipping point, is not so certain: it all depends on whether Trump can avoid war, either literal of metaphorical: